General Practice, Solo, and Small Firm Division The Compleat Lawyer
Winter 1997, Volume 14, No. 1 copyright American Bar Association. All rights reserved.
BY ROBIN PAGE WEST, J. STEPHEN SIMMS, AND VINCENT J. COLUMBIA, JR.
Robin Page West is a sole practitioner in Baltimore, Maryland, concentrating in the areas of False Claims Act cases and complex civil litigation. J. Stephen Simms is a principal in the Baltimore, Maryland, firm of Greber & Simms. Vincent J. Columbia, Jr., is an associate at Greber & Simms. Ms. West and Mr. Simms represented the relator in U.S. ex rel. Fletcher v. MetPath, Inc., the fourth largest qui tam recovery nationwide in 1995.
A new client comes to you for advice about what to do after having been fired. Her former employer sells blood plasma to the federal government for use in treating Medicare and Medicaid patients and veterans.
The client tells you that she was harassed, threatened, intimidated, and eventually dismissed after she complained to her boss that the product was not tested properly for the presence of HIV and Hepatitis C before it was sold to the government. The employer's contract with the government guaranteed that the product would be properly tested.
A former personal injury client comes to you for advice about problems her father is having in a nursing home. She became concerned when her family doctor told her that her father, a Medicare recipient, had become profoundly malnourished while in the nursing home.
A business client who owns a small strip shopping center has heard rumors that one of his tenants, a grocery store, is exchanging food stamps for cash instead of food. He knows this is illegal but doesn't know what to do and wonders whether he may get in trouble since he is the landlord.
Although their situations at first glance appear to be widely disparate, each of these clients may have a valid cause of action under the civil False Claims Act (31 U.S.C. 3729, et seq.), which allows a private individual with knowledge that the federal government is being defrauded to file suit on behalf of the government to recover compensatory damages, stiff civil penalties, and treble damages.
The person bringing the suit (the relator) will usually be rewarded with anywhere from 15 to 30 percent of the total amount recovered on behalf of the government if the fraud reported was not already publicly disclosed, or if the relator had direct and independent knowledge of the fraud and no one else has filed a False Claims Act case about the same fraud.
Fraud on the Government Is Rampant Doing business with the federal government constitutes a significant portion of the economy and likely will remain so for the foreseeable future. Indeed, many private businesses obtain significant portions of their incomes, if not their entire incomes, from selling various goods and services to the federal government, particularly in the areas of defense and health care. For example, the federal government spends approximately $110 billion annually on Medicare, and $13 billion annually on veterans' hospitals and services. State and federal Medicaid expenditures are estimated at $90 billion annually.
In this marketplace, it is all too common to find companies defrauding the government by providing goods and services that are not in accordance with the terms of the contracts or applicable governmental regulations. Given the nature of doing business with the government, these fraudulent activities often go undetected. The General Accounting Office reported in 1992 that health care fraud is responsible for 10 percent of the government's health care expenditures, concluding that the government had been defrauded of approximately $80 billion in health care expenditures to date. Statute Protects Fired Whistleblowers
Individuals who have been fired or discriminated against as a result of their efforts to uncover or investigate the fraud may also be awarded "all relief necessary to make the employee whole," including reinstatement, back pay, two times the amount of back pay, litigation costs, and attorney fees pursuant to 3730(h) of the Act.
Deputies in the War on Fraud
The False Claims Act, also sometimes referred to as the "Lincoln Law," the "Informer's Act," or the "qui tam" statute, was enacted during the Civil War. Qui tam is shorthand for the Latin phrase qui tam pro domino rege quam pro seipse, meaning he who as much for the king as for himself. The law was targeted at stopping dishonest suppliers to the Union military at a time when the war effort hampered the government's own ability to investigate and prosecute the fraud.
The statute was amended in 1943 and most recently in 1986, when the legislature put more teeth into it. Over 1,000 qui tam suits have been filed since then, and those that have been litigated and/or settled have returned to the government an amount estimated at over $1 billion.
Why a Qui Tam?
One advantage of bringing a qui tam action in response to the three scenarios above is that the False Claims Act may offer a basis for bringing an action against the defendant when more traditional actions are foreclosed due to the lack of a legally cognizable injury. In addition, a qui tam action may be brought with minimal actual expense on the part of the relator if the government exercises its statutory right to intervene in the case and take it over.
Even if the government chooses not to intervene, the relator can still pursue the action himself or herself and potentially recover costs and attorney fees should he or she prevail. If the qui tam action is successful, it will not only stop the dishonest conduct, but it may also result in the relator's receipt of a substantial share of the government's ultimate recovery.
Creative Legal Approaches
The post-1986 caselaw is relatively sparse, having had only ten years to develop. As a result, lawyers interested in pushing the limits of the envelope will relish the opportunity to litigate a qui tam case. The three examples above illustrate the breadth of the False Claims Act's scope. In Luckey v. Baxter Healthcare Corp. (No. 95 C 509), the U.S. District Court for the Northern Division of Illinois in its May 9, 1996, Memorandum Opinion and Order, denied the defendant's motion to dismiss in a situation similar to the first example above, holding that the relator's uncovering and reporting of the faulty testing was protected under the act and that her complaint sufficiently alleged retaliatory discharge.
The second example above is similar to the allegations made by the Department of Justice in the case of U.S. v. GMS Management-Tucker, Inc. et al. (E.D. PA, CA No. 96-1271), which was settled for $600,000 in February 1996. The government alleged that the defendants' failure to provide adequate nutrition in violation of the Nursing Home Reform Act while billing Medicare and Medicaid for nursing home services constituted a false claim within the meaning of the statute.
Finally, the third example above was addressed by an Illinois district court in Izieh Abdelkhalik v. U.S. (96 WL 41234 (N. D. Ill., Jan. 30, 1996)), where it ruled on summary judgment that lack of supervision of a store's cash register could constitute a knowingly submitted false claim in a situation where food stamps were exchanged for cash instead of food in the store.
A Unique Process
Unlike other civil cases, a complaint filed pursuant to the False Claims Act must be served on the government and is not served on the defendant until ordered by the court, must be filed under seal, and must be buttressed by a comprehensive memorandum, not filed in court, but served on the government. Failure to follow these and other unique statutory requirements can result in dismissal of the action.
The government may initiate civil and/or criminal investigations, or it may choose not to intervene. According to Department of Justice reports in August 1995, over $18 million has been recovered in qui tam cases the government refused to take over. The better-investigated and more solid the case is before suit is filed, the greater the likelihood that the government will be interested in pursuing it.
If the government does not intervene in your case, you will be responsible for litigating it. Consider associating with other lawyers or firms should it appear that the case, while potentially meritorious and highly lucrative, is simply too complex or massive to handle without additional resources.
Before filing a qui tam complaint, make your client aware that prosecution of the claim can result in the losing party being required to pay the prevailing party's attorney fees and expenses pursuant to 3730(d)(4) if the suit was frivolous, vexatious, or harassing.